Survival and Growth for Electrical Distributors

Distribution Industry Perspective Survival and growth for electrical distributors It wasn’t long ago that electrical distributors could rely on regional and territorial advantages as a means of maintaining a steady stream of regular customers. That guaranteed revenue, however, quickly dissipated when the ubiquity of the Internet started introducing customers to competitors from across the globe. In just a few years, customer behavior and expectations have drastically changed as a result of easy access to low prices from a wide variety of online sources. In this increasingly competitive environment, it’s more important than ever to not just understand your customers’ specific needs, but to also have the flexibility to adjust your business practices in order to meet those needs. And it’s not about offering the lowest prices. Instead, it’s about finding ways to differentiate your business in order to build customer loyalty. Combine this with finding ways to streamline your business practices to increase your margins, and you have the keys to survival and growth. 2Distribution Industry Perspectives 3 Seize opportunities 4 Manage unique inventory requirements 5 Case study: McNaughton-McKay 6 Manage complex pricing requirements 7 Offer value-added services 8 Meet job management requirements 9 Support omni-channel sales and fulfillment 10 Support growth 11 Case study: Shealy Electrical Wholesalers 12 Be ready for tomorrow Table of Contents 3Distribution Industry Perspectives Seize opportunities Just as competition continues to grow for electrical distributors, so does the potential for growth. Revenue for electrical wholesalers is expected to grow from $161 billion in 2014 to $192 billion in 2019, with an estimated annual growth rate of 3.5%, according to a report by IBISWorld. IBISWorld attributes this growth to “a rebound in construction activity, the growing trend toward energy efficiency, and [the] aging electrical infrastructure.” Technological advances and innovations, such as with machine-to-machine (M2M) communications also pose opportunities. In fact, M2M is predicted to have a potential economic impact of as much as $6.2 trillion by 2025, according to a report from the National Association of Electrical Distributors (NAED). These “disruptive technologies” will likely impact many product categories that electrical distributors regularly deal with, such as customized lighting, energy storage devices, electric vehicle products and components, and gesture and motion controlled devices. Predicted industry growth and new technologies, however, won’t help you if you expect to compete only on selection or price. Trying to go against online behemoths, like Amazon Business® or Grainger®, in these areas will likely be a losing proposition. As of yet, Amazon Business hasn’t grabbed too many traditional electrical distributor customers. But that could change. So how can you compete? By either offering something the competition doesn’t (such as product expertise), or by doing a better job of meeting your customers’ particular needs (such as meeting complicated job management requirements). To do this effectively, and with the necessary flexibility to keep up with a quickly changing industry, you need the right tools. This paper discusses some key business capabilities you should consider adding or enhancing in order to help maintain your competitive edge. Even if Amazon Business reach into traditional electrical distribution channels continues to expand, Amazon doesn’t necessarily have to be considered a competitor. If circumstances allow, you could turn a competitive issue into an opportunity by partnering with Amazon as a supplier. According to Electrical Trends, “Amazon Supply might be the friend that sells more product for your company at a discounted commission or profit. It will depend on the prices that are exposed and what you are willing to take as profit.” 4Distribution Industry Perspectives Manage unique inventory requirements “The right tool for the right job” is a saying that applies to electrical distributors as much as it does to contractors. And this isn’t limited to just things like forklifts and fish tapes; it also applies to the business systems you use to run your company. When you use business systems that are designed specifically for electrical distributors, you get complete support for the unique attributes of the types of products you source and sell. Generic or antiquated ERP systems, however, typically require customization and clunky fixes to meet your needs. As Forbes points out, “One of the hard realities that many enterprises are dealing with right now is the fact that their legacy ERP systems can no longer keep pace with their new business models.” An ERP solution that’s specifically designed for electrical distributors, on the other hand, is going to be able to easily integrate with your distinct business needs, such as seamlessly supporting the unique inventory types (such as wire and remnants) that you work with every day. It’s going to be able to handle non-stock and special order items, front counter capabilities, rebate functionality, and contract pricing, as well as support the vast amounts of product data (including a large number of SKUs and detailed item descriptions) that electrical distributors must manage. An industry-specific solution is also going to be able support business processes that are specific to distributors, such as being able to offer value-added services and omni-channel sales and fulfillment. Today’s purpose-built ERP systems are designed as “workflow-based applications that can more closely align with the unique, complex and one-of-a-kind needs of a given industry,” as Forbes explains. “Many of these legacy [ERP] systems were customized and implemented when internal production efficiency, not customer-driven agility and responsiveness, was the highest priority.”1 —Forbes 5Distribution Industry Perspectives When McNaughton-McKay rapidly expanded from a single site to over 20 different locations spanning 5 states, the company found itself trying to function using 7 disparate business systems. To improve operations, McNaughton-McKay decided to implement an industry-specific, integrated solution that provided complete visibility into inventory across all of its locations and allowed enterprise-wide financial reporting. With the new solution in place, the company saw significant improvements in areas such as inventory shipments, accuracy, quality, counting, and tracking. In fact, one of its warehouses nearly doubled its line count from 1,800 to 3,300. Learn how McNaughton-McKay was able to improve operations and increase its line count › Case study: McNaughton-McKay 6Distribution Industry Perspectives There’s more to pricing a product than merely determining what your margins should be. In addition to being able to accommodate the complex pricing that’s a direct byproduct of your unique inventory requirements (such as pricing wire by the foot, reel tracking, and assigning prices to every SKU), your business systems also have to be able to accommodate different customer types, regions, channels, seasonality, and more. An industry-specific solution can help you manage complex pricing requirements such as: ■ Matrix pricing ■ Pricing discounts/quantity breaks ■ Packaging breaks ■ Contract pricing ■ Special pricing agreements (SPAs) An industry-specific solution can help you to do more strategic pricing and give you an advantage in meeting the demands of your customers, while helping ensure you maintain your margins. 81% 67% 67% 63% 52% 32% 16% Opportunities for growth for electrical distributors 0 20 40 60 80 100 Customized lighting Energy storage devices Electric vehicle products and components Gesture and motion controlled devices Additive manufacturing Low cost robotics Autonomous vehicle products and components This table represents the percentage of respondents who identified opportunities for electrical distributors in the next few years. Source: National Association of Electrical Distributors, The Path to Disruption, June 2014. Manage complex pricing requirements 7Distribution Industry Perspectives Offer value-added services One of the best ways to differentiate your business from the competition is to take on more responsibility for your customers’ active manufacturing and assembly operations through value-added services, such as: ■ Lighting layout and design ■ Wire and cable cutting and stripping ■ Kitting ■ Fabrication ■ Assembly ■ Custom packaging and labeling ■ Service and warranty ■ Integrated supply ■ Vendor-managed inventory ■ Job site delivery ■ Emergency deliveries ■ Standing orders ■ Early morning deliveries ■ Training On top of this, you can also offer technical and product expertise that most online providers lack. As the NAED wisely advises, “A distributor should be a problem solving company. If your customers’ problems can be solved by value added services, find a way to get it done.” Whether you charge for these services or not, the more value you can offer to your customers, the more value they’ll see in you as a distributor. To reliably execute these services, however, your business systems must support them and be able to integrate them into your overall business processes and workflows. With support for areas such as kit product revisions, fabrication services, and integrated supply, you’ll have the means and the tools to deliver services to your customers that go beyond what the competition can deliver. One of the best ways to differentiate your business from the competition is to take on more responsibility for your customers’ active manufacturing and assembly operations by offering value-added services. 8Distribution Industry Perspectives Meet job management requirements Another way you can improve your reach is by being able to manage the specific requirements of jobs that take place over a period of time and/or at several different locations—such as construction projects. Not all electrical distributors are prepared to accommodate the nuances that these types of projects demand, such as being able to manage complex schedules and frequent schedule changes, while expediting bids. To properly manage complex contract jobs, you need to be able to track multiple transaction types and levels for greater control over invoicing, reporting, and estimating. You get that with a robust ERP solution that’s designed specifically for electrical distributors. With such a solution, you’ll be able to improve the planning and management of jobs, as well as provide more accurate estimates and job costing. And by being able to automate bidding, awarding, billing, maintenance, and tracking procedures, you’ll be able to ensure the right products are delivered to the right location at the right time at the right price. When you can deftly juggle the myriad of changing variables that are inherent with complex contract jobs, you’ll be able to expand into new markets and grow your customer base. 9Distribution Industry Perspectives Support omni-channel sales and fulfillment In today’s competitive market, you need to be able to sell your products in multiple channels. Online sales certainly represent an excellent sales opportunity— according to the NAED, “Online sales of industrial products are growing at twice the rate of traditional sales methods.” Still, while approximately 55% of contractors will sometimes buy online, these online purchases represent only “about 8% of their total volume,” the NAED reports. This means that you need to look beyond online sales and traditional counter sales if you want to compete and grow your business. You need to be able to sell across a range of channels that can include: ■ Online sales ■ Counter sales ■ Mobile apps ■ Social media ■ Call centers ■ EDI ■ Kiosks ■ Inside sales With the right solution, you can process transactions quickly and seamlessly, regardless of how and where the sale is taking place. You’ll be able to provide easy access to the information needed to process an order or request, including detailed customer sales history, product specifications, photos of various product offerings, and replacement products that are available to order. Your system also needs to be able to ensure that your warehouses can fulfill these orders, regardless of what channels they come in from. You need to have complete visibility into your whole inventory, so that you can ensure that the right warehouse handles an order based on the fulfillment flow (whether pick up at counter or deliver from warehouse) and that sold products are replenished in the right quantity at the right location. Having the means to support multiple channels is critical for continued survival in today’s complex world. To support those channels, you must have business systems that have the agility and adaptability to meet this complexity and whatever comes next. While contractors currently only buy “about 8% of their total volume” online, you can’t ignore the fact that “online sales of industrial products are growing at twice the rate of traditional sales methods.” This means that 8% figure is steadily moving upward, creating an ever-growing revenue opportunity in the form of online sales. But being online is also about more than just selling products. It’s also about selling “your name, your brand, your company, your competitive advantages, and the reasons to buy from you.” It’s also about having an online presence when prospects use the Internet to research a potential purchase. 10Distribution Industry Perspectives Support growth One of the keys to Amazon’s success is in the breadth of products it sells. While it’s unlikely that you can ever hope to match Amazon’s inventory, there are things you can do to increase the number of different products you sell. One effective way of significantly increasing your SKU count is through a merger or acquisition. Industrial Supply Magazine reports that industrial distributors who have high SKU counts are “growing at a minimum of 2x the GDP of 2.5%, whereas distributors with smaller content show only slight growth.” When you increase your SKU counts, it’s essential that your business systems can accommodate a vast number of different products. And when the quantity of SKUs significantly increases due to a merger or acquisition, your systems also needs to have the flexibility to easily adapt to all the new data that you now have to manage. Of course, there are other reasons to consider a merger or acquisition, such as selling to and/or sourcing from new regions, and reaching new markets (such as expanding your e-commerce reach). Regardless of your motivation, having the right business systems in place makes it much easier to support the onboarding of acquired companies. And just as the flexibility to accommodate additional SKUs is critical, so is the flexibility to ensure enterprise-wide processes, such as: ■ Streamlining financial reporting and analysis ■ Ensuring the smooth transition of people, processes, and applications ■ Implementing new analytical and management reporting capabilities ■ Lowering IT costs by maintaining a single ERP system When the quantity of SKUs significantly increases due to a merger or acquisition, your systems need to have the flexibility to easily adapt to all the new data. 11Distribution Industry Perspectives Shealy Electrical Wholesalers was able to double the number of its locations and its sales volume in a short period of time, without needing to add a lot of support personnel. This was in large part because Shealy Electrical’s business systems had the extensibility and flexibility to easily support expansion to new locations. Robust training modules and easy-to-use software helped make the implementations quick and seamless. With approximately 10,000 SKUs and strong support for counter sales, the company is confident that its business systems will continue to support its anticipated future growth. Learn how Shealy Electrical Wholesalers was able to support its quick growth › Case study: Shealy Electrical Wholesalers 1 Louis Columbus, “The Days Of Brute Force ERP Are Over,” Forbes, December 12, 2014. Be ready for tomorrow Learn more about how to increase your competitive edge Copyright ©2015 Infor. All rights reserved. The word and design marks set forth herein are trademarks and/or registered trademarks of Infor and/or related affiliates and subsidiaries. All other trademarks listed herein are the property of their respective owners. www.infor.com. 641 Avenue of the Americas, New York, NY 10011 Share this :    INF-1459790-en-US-0715-3 With an ERP solution that’s designed specifically to meet the needs of electrical distributors, you’ll have the tools you need to meet today’s customers’ needs and the agility to quickly adjust for wherever your business might take you tomorrow. With an industry-specific ERP solution, you’ll be able to: ■ Efficiently manage the unique attributes, complex pricing, and high SKU counts of electrical inventory. ■ Deliver value-added services to your customers. ■ Support the intricate schedules and logistics of complex contract jobs. ■ Accommodate sales and fulfillment for multiple sales channels. ■ Reach new markets, enlarge your customer base, and increase your inventory through mergers and acquisitions. With your business systems operating as a flexible infrastructure, you’ll be ready to take advantage as change and opportunities come your way.